'Sharp drop in gold import can help contain CAD'

October 01, 2013 15:46 IST

Encouraged by a steep decline in gold imports, the Finance Ministry today expressed confidence that the current account deficit in 2013-14 will decline to $70 billion or 3.7 per cent of the gross domestic product.

Gold imports had totalled 335.1 tonne in the April-June quarter, but have declined to 58.37 in the second quarter (up to September 25).

"This indicates a very sharp compression in the gold imports in Q2 onwards and we expect this trend to continue," Department of Economic Affairs Secretary Arvind Mayaram told reporters in New Delhi.

The government expects the gold import to come down to 800 tonne this fiscal, as against 845 tonne in 2012-13.

Higher gold imports and slowdown in overall exports were the main reasons that pushed CAD -- the difference between inflow and outflow of foreign exchange -- to a record high of 4.8 per cent of GDP or $88.2

billion last fiscal.

Mayaram said that in August, exports grew in double digit and the overall merchandise imports slowed.

"Trade deficit narrowed in August to a five month low of $10.9 billion.

“Thus, CAD will be contained at $70 billion.

“Already, many institutional analysts have revised their BoP outlook on CAD and capital flows," he said.

The "elevated level" of CAD at 4.9 per cent of the GDP ($21.8 billion) in first quarter was mainly due to gold imports which stood at $16.5 billion.

It would have been lower at $14.5 billion excluding the high gold imports.

"With the measures announced by the Finance Minister on August 12, 2013 to compress gold, it is estimated that gold imports could be restricted to about 800 tonne and substantial gains could accrue in the next nine months," Mayaram added.

He sounded confident that India will get additional capital flows to finance CAD fully without any recourse to draw down of reserves this fiscal.